Growth is estimated at 4.3 percent in 2017 and is expected to remain broadly unchanged.

On December 19, 2018, the Executive Board of the
International Monetary Fund (IMF) completed the fifth review under the
Extended Credit Facility (ECF)
arrangement for the Central African Republic.
Completion of this review enables the disbursement of SDR 22.84 million
(about US$31.6 million).

The three-year ECF arrangement was approved by the IMF Executive Board on
July 20, 2016 and access has been augmented twice to a total of SDR 133.68
million (about US$185.2 million or 120 percent of the Central African
Republic’s quota).

Following the Executive Board’s discussion on the Central African Republic,
Mr. Mitsuhiro Furusawa, Deputy Managing Director and Acting Chair, made the
following statement:

“Central African Republic’s performance under the ECF‑supported program has
been satisfactory despite a challenging security environment and difficult
humanitarian conditions.

“The authorities remain committed to maintain fiscal policy consistent with
macroeconomic stability, which is critical for economic growth and poverty
reduction. The 2019 budget is anchored to the domestic primary balance
objective while allowing a scale-up of social and capital spending. The
integration in the budget of previously excluded revenues and expenses of
government agencies and funds is an important step to enhance fiscal
transparency.

“Strong efforts to mobilize domestic revenues, which remain weak, will be
critical to sustainably finance an increase of public services. To that
end, the authorities will step up the use of IT tools and modernize the
customs and revenue administration. Given the country’s high risk of debt
distress, continued reliance on grant financing is essential to support
debt sustainability. The implementation of the investment program for the
National Recovery and Peacebuilding Plan will boost economic prospects,
create jobs, and reduce poverty.

“Structural reforms have progressed, contributing to the strengthening of
the treasury single account, streamlining of quasi-fiscal taxes, improved
budget transparency and traceability of domestic revenues. Quarterly
publication of budget execution reports allows for better tracking and
monitoring of government expenditures. More consideration should be given
to strengthening financial oversight of public institutions and state-owned
enterprises, reducing exceptional payment procedures, improving the
business climate, and strengthening the asset declaration regime. It will
also be important to follow through on commitments to strengthen governance
and transparency in the management of natural resources.

“Central African Republic’s program continues to be supported by the
implementation of supportive policies and reforms by the regional
institutions in the areas of foreign exchange regulations and monetary
policy framework and to support an increase in regional net foreign assets,
which are critical to the program’s success.”

The Executive Board of the IMF also concluded the 2018 Article IV
consultation with the Central African Republic.

Growth is estimated at 4.3 percent in 2017 and is expected to remain
broadly unchanged driven by a dynamic forestry sector, construction and
externally financed investment projects. Inflation fell on the back of
price declines for food and manufacturing products. Growth could increase
to 5 percent in the medium term. However, risks are on the downside, mainly
due to the volatile security situation. The projections are predicated on
progress in peace and reconciliation efforts under the African Union
Initiative, the gradual extension of security forces and public services in
provinces, and steadfast implementation of reforms.

In July 2018, the Parliament passed a revised budget to reflect the fiscal
performance in the first half of the year. Data through end-September
confirms that the fiscal deficit remains contained and that the fiscal
program is on track. The current account deficit is estimated at 8.3
percent of GDP in 2017. Currently available information suggests it will
remain at a similar level in 2018. While the oil import bill is set to
increase, higher timber exports and the sale of stockpiled diamonds will
offset the effect on the trade balance. The banking sector remained stable
and credit growth to the economy has picked up to 5.2 percent (y-o-y) at
end-September 2018.

The Central African Republic authorities have implemented a comprehensive
economic reform program to entrench macroeconomic stability, buttress
inclusive growth, and reduce poverty. The parliament adopted a 2019 budget
consistent with macroeconomic stability. The 2019 budget enhances fiscal
transparency by integrating previously excluded fiscal revenues and
expenditure. The authorities also envisage to increase social spending. To
bolster growth prospects, resilience, and poverty reduction, the
authorities have committed to strengthen fiscal revenue mobilization,
enhance good governance, promote gender equality and improve the business
climate.

Executive Directors agreed with the thrust of the staff appraisal. Given
the persistent insecurity and the large humanitarian needs of the
population, they recognized the Central African Republic’s efforts to
implement its economic program and the satisfactory performance under the
ECF arrangement. Directors stressed the importance of rebuilding sound
institutions and maintaining macroeconomic stability, which provide an
important opportunity toward exiting fragility. Against this difficult
backdrop, Directors welcomed the authorities’ continued commitment to the
program objectives, and underscored the need to implement the National
Recovery and Peacebuilding Plan and the development agenda to boost
economic prospects. Directors emphasized that higher and inclusive growth
will be critical to create jobs and reduce poverty. They underlined the
importance of continued Fund engagement through ongoing technical
assistance and close coordination with other development partners, paying
due regard to the country’s absorptive capacity.

Directors welcomed the authorities’ commitment to ensure that fiscal policy
remains consistent with macroeconomic stability while stepping up social
spending. They underscored the importance of further improving domestic
revenue mobilization to sustainably expand the provision of public
services. In this regard, Directors encouraged the authorities to further
strengthen customs and tax administration, enhance information exchange
between government agencies, modernize payment systems, and use IT systems
more comprehensively. They commended the authorities for integrating in the
2019 budget previously excluded expenditures and revenues from government
agencies and funds, as well as for increasing the budget allocation for key
ministries providing social services. Directors welcomed the recent
simplification of the oil price structure that would limit the fiscal
impact of higher global oil prices.

Directors noted the progress in improving public financial management,
including regular and timely budget execution reporting and reduced use of
exceptional spending procedures. They encouraged the authorities to further
streamline quasi‑fiscal taxes and levies. Directors underscored the
importance of good governance and the fight against corruption. They
encouraged the authorities to strengthen the asset declaration regime,
implement the United Nations Convention against Corruption, and improve the
management of natural resources, including by adhering to the principles of
the Extractive Industries Transparency Initiative.

Directors noted the staff assessment that the external position appears
weaker than implied by medium‑term fundamentals and desirable policies.
They pointed out that the insecurity, high transportation cost, and a weak
judicial system undermine the country’s attractiveness for investment.
Noting the high risk of debt distress, Directors recommended limiting
borrowing and seeking instead to mobilize grant financing to its fullest
extent. They also called for continued efforts to resolve external arrears.
Directors welcomed progress to clear domestic arrears and encouraged
steadfast implementation of the strategy while ensuring transparency and
accountability of the process.

Directors noted that the Central African Republic’s program continues to be
supported by the implementation of policies and reforms by the regional
institutions, which are critical to the program’s success. These comprise
the implementation of the three policy assurances provided in the June 2018
Letter of Policy Support, as updated with respect to the assurance on NFAs
by the December 2018 Letter, and as discussed in the December 2018
union‑wide background paper. Completion of the sixth review will be
conditional on the implementation of these policy assurances.

It is expected that the next Article IV consultation with the Central
African Republic will be held in accordance with the Executive Board
decision on consultation cycles for members with Fund arrangements.

3
Comprises government debt to BEAC, commercial banks and
government arrears.

[1]
At the conclusion of the discussion, the Managing Director, as
Chairman of the Board, summarizes the views of Executive Directors,
and this summary is transmitted to the country's authorities. An
explanation of any qualifiers used in summings up can be found
here:
http://www.imf.org/external/np/sec/misc/qualifiers.htm
.